Digital Finance’s Tentative Thumbs Up

The Brookings Institute published the second annual edition of its digital and financial inclusion report surveying two dozen low and middle-income economies, with strides toward the 2030 Sustainable Development Goals despite large gender, technology and regulatory gaps. It describes formal banking provision, but finds that almost one-fifth of savers in underserved populations use informal clubs. The US is outside the scope, but 8 percent of households lack accounts and consumer protection is still evolving toward payday lenders and similar nonbank channels. The Treasury Department and Agency for International Development have teamed on “empowerment initiatives” particularly targeting marginalized communities along the Texas-Mexico border and in Appalachia. Africa is well represented in the top ten performers, with Kenya number one at an overall 85 score and South Africa, Uganda, Rwanda and Nigeria in the group. Latin America’s contingent is almost equal from Colombia, Brazil, Chile and Mexico, while the Philippines rounds out the pack and Turkey and India are just behind at over 70 results. Egypt was at the bottom with the only total below 50, ranking in back of Afghanistan, Ethiopia and Haiti as measured by country commitment, mobile capacity, regulatory climate and adoption. A new addition, El Salvador, was singled out for progress, while Peru was praised among existing members for designing a national inclusion strategy, which will be the responsibility of recently-inaugurated President and former investment banker known as PPK to implement. During the campaign income inequality and social safety nets were major issues, and the incoming administration will promote rural and indigenous citizen financial service access as a priority, officials insist. Next-door Colombia sets specific benchmarks for adult product penetration (75 percent) and active accounts (55percent). Mexico collects both demand and supply-side data and stresses education and an access point for every 10,000 savers in its approach. African countries lead in mobile money application but lag in capacity pending greater “buildout,” according to the study.

 Interoperable digital payment platforms are an overriding supervisory challenge for central banks and service providers, with the Philippines’ GCash and PayMaya a good recent example of innovation and oversight coordination. India followed in 2015 with an agreement in principle among a dozen users for a common network to be established under Reserve bank rules. However a sizable gender disparity lingers in the developing world with women nine points behind men on formal financial system engagement. The Brookings project urged more information collection, detailed targets, country models such as Zambia’s female enterprise credit push, and biometric features to facilitate digital preference while safeguarding privacy. It added that post offices should be core to outreach as World Bank and Gallup surveys have found them to be popular and comfortable transaction locations. Migrants and refugees are also “under-resourced” and three countries in the ranking, Turkey, Pakistan and Ethiopia are among the top refugee hosts globally. Youth need to be served and branchless banking is natural given constant movement from influx to accommodation and resettlement. Language is another barrier, and technology for verifying identity in food and allowance allocation could be adapted for microfinance and small business credit, and relief organizations are already working with development partners on these more inclusive schemes, the document concludes.